Captive Supplies and the Spot Market Price of Fed Cattle: The Plant-Level Relationship

Schroeter, John R.; Azzam, Azzeddine M.

Agribusiness: An International Journal Vol. 19 no. 4 (Fall 2003): 489-504.

Numerous papers in the agricultural economics literature investigate the empirical relationship between the spot market price of fed cattle and the volume of packers' pre-committed, or "captive," supplies of cattle. In this paper, we use an extensive data set on the cattle procurement activities of four large packing plants in the Texas Panhandle from early 1995 through mid-1996 to examine this relationship at the plant-level. We find evidence to support the hypothesis that plants that anticipate near-term-future deliveries of captive supply cattle that are high relative to their regional-market rivals' degrees of reliance on captive supplies tend to pay spot market prices that are below average. The effect, while statistically significant, is relatively small in magnitude, however.

Published Version